Background
Following Russia’s invasion of Ukraine in February of 2022, the UK has implemented an extensive regime of sanctions and export controls, restricting Russia’s access to goods required to sustain its military operation. In response, Russia has taken increasingly complex steps in an effort to evade sanctions by the UK and its partners.
Under Regulation 55 of The Russia (Sanctions)(EU Exit) Regulations 2019, knowing participation in direct or indirect circumvention of the UK’s prohibitions is a criminal offence.
Given the UK’s extensive financial footprint and involvement in global supply chains, the shipping and freight industry is particularly vulnerable. The Guidance is therefore addressed to “freight forwarders, carriers, hauliers, customs intermediaries, postal and express operators, and other companies facilitating the movement of goods.”
Means of Circumvention
The Guidance highlights a number of such complex means of evasion potentially being employed. Key modes of circumvention identified by the Guidance include:
- Third countries: shipments to neighbouring third countries may facilitate Russia’s access to sanctioned goods. Additional due diligence should be employed particularly where the destination country borders Russia, and has not imposed sanctions against them. The use of unreasonably complex shipping routes, or the avoidance of established ports is another potential indicator.
- Use of Shell Companies: Procurement entities may attempt to use a shell company as a purchasing front for sanctioned goods. Companies should therefore be wary of unusual customers, transactions that inexplicably involve multiple parties based in third countries, and unsolicited approaches to ship goods from the UK. Financial inconsistencies such as dubious modes of payment should also be investigated.
- Deceptive labelling and side-stepping customs: concealing the consignment may be a means of attempting to evade sanctions. This may be done through false or incomplete descriptions of goods, or shipping parts of a product in smaller quantities that fall under export control limits. Businesses should be wary of unusual or inconsistent shipment quantities and vague descriptions.
Steps Advised for Compliance
Businesses within the industry are expected to take pro-active measures to combat attempts to evade sanctions. A holistic assessment of each transaction should be conducted, which can include the following:
- Due diligence: businesses are advised to conduct enhanced due-diligence of consignments, customers, and transactions where indicators of evasion are found. This involves pre-screening of customers, screening consignments and accompanying paper work, and conducting regular checks even with established trading partners. While any one of the above warning signs is not concrete evidence of circumvention, the Guidance sets out the expectation of independent research and prompt steps to address a sanctions risk.
- Policy revisions to mitigate risk: Postal and express deliveries are advised to publish a ‘sanctioned goods policy’. Businesses across the shipping and freight sector would benefit from adding sanction-specific clauses to the terms and conditions, and any contracts of carriage.
- Supply chain investigation: shipping and freight businesses should clarify the role and involvement of suspicious third-parties. They should ensure that intermediaries and brokers have no involvement in prohibited activities.
Implications
The Guidance sets out a clear expectation for businesses in the shipping and freight industry to remain wary of circumvention red flags, and investigate such transactions promptly. Businesses should remain familiar with any amendments to the UK’s Consolidated Sanctions List, and the Russia (Sanctions)(EU Exit) Regulations 2019. Breach of trade sanctions may result in enforcement actions including criminal prosecution or civil monetary penalties.
The Guidance can be found here: Countering Russian sanctions evasion: guidance for the freight and shipping sector – GOV.UK
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